1997 ANNUAL REPORT
IDS
Bond Fund
(prospectus enclosed)
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The goal of IDS Bond Fund, Inc. is to provide shareholders with a high level of
current income while attempting to conserve the value of the investment and to
continue a high level of income for the longest period of time. The Fund invests
primarily in corporate bonds and other debt securities.
(This annual report includes a prospectus that describes in detail the Fund's
objective, investment policies, risks, sales charges, fees and other matters of
interest. Please read the prospectus carefully before you invest or send money.)
AMERICAN EXPRESS Financial Advisors
Distributed by American Express Financial Advisors Inc.
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Striking a balance among bonds
A bond is like an I.O.U. But with a bond, it's a corporation or the government
- -- the bond issuer -- that promises to pay the money back. In return for lending
money to the issuer, bond investors get paid interest, which varies by bond
quality. (The lower the quality, the higher the interest.)
Bond Fund invests largely in high-quality bonds, but includes some lower-quality
and even some foreign bonds seeking to boost the return. The portfolio manager
shifts this mix, as well as the balance between corporate and government bonds,
as investment conditions dictate. In doing so, the Fund seeks to maximize the
long-term return potential for investors.
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Contents
(icon of) One open book inside of another
The purpose of this annual report is to tell investors how the Fund performed.
The prospectus, which is bound into the middle of this annual report, describes
the Fund in detail.
1997 annual report
From the president 4
From the portfolio manager 4
The Fund's ten largest holdings 6
Making the most of the Fund 7
The Fund's long-term performance 8
Independent auditors' report 9
Financial statements 10
Notes to financial statements 13
Investments in securities 26
IDS mutual funds 42
Federal income tax information 46
1997 prospectus
The Fund in brief 3p
Goal 3p
Investment policies and risks 3p
Manager and distributor 3p
Portfolio manager 3p
Alternative purchase arrangements 3p
Sales charge and Fund expenses 4p
Performance 6p
Financial highlights 6p
Total returns 8p
Yield 10p
Investment policies and risks 11p
Facts about investments and their risks 11p
Alternative investment option 15p
Valuing Fund shares 16p
How to purchase, exchange or redeem shares 17p
Alternative purchase arrangements 17p
How to purchase shares 20p
How to exchange shares 23p
How to redeem shares 23p
Reductions and waivers of the sales charge 28p
Special shareholder services 33p
Services 33p
Quick telephone reference 33p
Distributions and taxes 34p
Dividend and capital gain distributions 34p
Reinvestments 35p
Taxes 35p
How to determine the correct TIN 37p
How the Fund is organized 38p
Shares 38p
Voting rights 38p
Shareholder meetings 38p
Board members and officers 38p
Investment manager 40p
Administrator and transfer agent 40p
Distributor 41p
About American Express Financial Corporation 43p
General information 43p
Appendices 44p
Description of corporate bond ratings 44p
Descriptions of derivative instruments 46p
(This annual report is not part of the prospectus.)
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To our shareholders
(picture of) William R. Pearce
President of the Fund
(picture of) Fred Quirsfeld
Portfolio manager
From the president
If you're an experienced investor, you know that the past two years have
been unusually strong ones in many financial markets. Perhaps just as
important, you also know that history shows that bull markets don't last
forever. Though they're often unpredictable, declines -- whether they're
brief or long-lasting, moderate or substantial -- are always a
possibility.
That fact reinforces the need for investors to periodically review their
long-term goals and examine whether their investment program remains on
track to achieving them. Your quarterly investment statements are one part
of that monitoring process. The other is a meeting with your American
Express financial advisor. That becomes even more important if there's a
major change in your financial situation or in the financial markets.
William R. Pearce
(This annual report is not part of the prospectus.)
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From the portfolio manager
The U.S. bond market experienced considerable volatility during the past
12 months. Fortunately, the ups exceeded the downs, enabling the Fund to
generate a double-digit total return of 12.1% for investors in Class A
shares from September 1996 through August 1997.
After several months of lackluster performance, the bond market
encountered a much more favorable environment when the period began last
fall. Supported by unthreatening reports on wage rates and inflation, as
well as expected results in the presidential and congressional elections,
the outlook soon turned positive. As a result, buyers came back into the
market, sending long-term interest rates lower and bond prices higher
throughout the fall.
A summer recovery
The winter and early spring were a different story, though, as
stronger-than-expected economic growth fanned inflation fears and sent
long-term interest rates higher. But once again investors were
subsequently reassured by more reports of low inflation, which spawned
increased buying, a downturn in interest rates and, ultimately, a rebound
in bond prices through much of the summer.
The Fund's performance pattern basically tracked that of the broad bond
market -- two surges sandwiched around a slump. Because I expected the
market to be volatile, I structured the portfolio with an essentially
neutral duration (a function of the average maturity of the securities in
the portfolio that determines how sensitive the portfolio is to changes in
long-term interest rates). Ultimately, this helped temper fluctuations in
the Fund's net asset value during interest-rate swings. In addition, I
maintained a high level of cash reserves in late winter and early spring
to cushion the Fund in the event of a sustained interest-rate rise. As it
turned out, rates came back down, so I gradually reduced the cash level.
A mix of investments
Consistent with my investment style, the portfolio remained diversified
among types of fixed-income securities of varying quality. While the
majority of investments were in investment-grade, or high-quality bonds,
including those issued by corporations and the federal government and its
agencies, about a quarter were in high-yield and emerging market issues,
which are considered to be below investment grade. The latter two groups
performed especially well during the past 12 months, while also enhancing
the Fund's yield.
Although I don't see any major threats to the bond market on the horizon,
I won't be surprised if inflation picks up a bit in the new fiscal year,
prompting the Federal Reserve Board to nudge short-term interest rates
somewhat higher. Any negative effect on the bond market would probably be
modest and relatively brief, however. Therefore, at this writing
(mid-September), I am staying with a neutral duration and focusing on
maintaining the Fund's dividend, which I expect to provide most of the
return in the current fiscal year.
Fred Quirsfeld
(This annual report is not part of the prospectus.)
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Class A
12-month performance
(All figures per share)
Net asset value (NAV)
Aug. 31, 1997 $ 5.22
Aug. 31, 1996 $ 4.99
Increase $ 0.23
Distributions
Sept. 1, 1996 - Aug. 31, 1997
From income $ 0.35
From capital gains $ --
Total distributions $ 0.35
Total return* +12.1%**
Class B
12-month performance
(All figures per share)
Net asset value (NAV)
Aug. 31, 1997 $ 5.22
Aug. 31, 1996 $ 4.99
Increase $ 0.23
Distributions
Sept. 1, 1996 - Aug. 31, 1997
From income $ 0.31
From capital gains $ --
Total distributions $ 0.31
Total return* +11.2%**
Class Y
12-months performance
(All figures per share)
Net asset value (NAV)
Aug. 31, 1997 $ 5.22
Aug. 31, 1996 $ 4.99
Increase $ 0.23
Distributions
Sept. 1, 1996 - Aug. 31, 1997
From income $ 0.36
From capital gains $ --
Total distributions $ 0.36
Total return* +12.2%**
* The prospectus discusses the effect of sales charges, if any, on the
various classes.
** The total return is a hypothetical investment in the Fund with all
distributions reinvested.
(This annual report is not part of the prospectus.)
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The Fund's ten largest holdings
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The ten holdings listed here make up 6.84% of the Fund's net assets
Percent Value
(of Fund's net assets) (as of Aug. 31, 1997)
Virgina Electric Power .94% $34,542,900
6.75% 2007
Viacom Intl .80 29,471,625
8.00% 2006
Connecticut Light & Power .79 28,947,800
7.75% 2002
New York Telephone .73 26,798,483
9.375% 2031
Tenet Healthcare .66 24,145,000
10.125% 2005
Scotland Bank .61 22,325,935
8.80% 2004
Ford Capital .59 21,708,784
9.50% 2010
Salomon .58 21,220,290
7.00% 1999
Long Island Lighting .57 21,177,818
9.625% 2024
Cleveland Electric Illuminating .57 20,843,785
7.67% 2004
Excludes U.S. Treasury and government agency holdings.
(This annual report is not part of the prospectus.)
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Making the most of the Fund
Build your assets systematically
One of the best ways to invest in the Fund is by dollar-cost averaging --
a time-tested strategy that can make market fluctuations work for you. To
dollar-cost average, simply invest a fixed amount of money regularly.
You'll automatically buy more shares when the Fund's share price is low,
fewer shares when it is high.
This does not ensure a profit or avoid a loss if the market declines. But,
if you can continue to invest regularly through changing market
conditions, it can be an effective way to accumulate shares to meet your
long-term goals.
How dollar-cost averaging works
Month Amount Per-share Number of shares purchased
invested market price
Jan $100 $20 5.00 XXXXX
Feb 100 18 5.56 XXXXXx
March 100 17 5.88 XXXXXx
April 100 15 6.67 XXXXXXx
May 100 16 6.25 XXXXXXx
June 100 18 5.56 XXXXXx
July 100 17 5.88 XXXXXx
Aug 100 19 5.26 XXXXXx
Sept 100 21 4.76 XXXXx
Oct 100 20 5.00 XXXXX
(footnotes to table) By investing an equal number of dollars each
month...
(arrow in table pointing to April) you automatically buy more shares when the
per share market price is low...
(arrow in table pointing to September) and fewer shares when the per share
market price is high.
You have paid an average price of only $17.91 per share over the 10
months, while the average market price actually was $18.10.
(This annual report is not part of the prospectus.)
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The Fund's long-term performance
Three ways to benefit from a mutual fund:
o your shares increase in value when the Fund's
investments do well
o you receive capital gains when the gains on
investments sold by the Fund exceed losses
o you receive income when the Fund's stock dividends, interest and
short-term gains exceed its expenses.
All three make up your total return. And you potentially can increase your
investment if, like most investors, you reinvest your dividends and
capital gain distributions to buy additional shares of the Fund or another
fund.
How your $10,000 has grown in IDS Bond Fund
$24,377
Bond Fund
Class A
$20,000
Lehman Aggregate
Bond Index
$10,000
$9,500
'87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97
Assumes:
oHolding period from 9/1/87 to 8/31/97.
oReturns do not reflect taxes payable on distributions.
oReinvestment of all income and capital gain distributions for the Fund,
with a value of $13,865. Also see "Performance" in the Fund's current
prospectus.
The Lehman Aggregate Bond Index is made up of a representative list of
government and corporate bonds as well as asset-backed securities. The
index is frequently used as a general measure of bond market performance.
However, the securities used to create the index may not be representative
of the bonds held in Bond Fund.
Average annual total return
(as of Aug. 31, 1997)
1 year Since inception 5 years 10 years
Class A +6.45% --% +7.74% +9.31%
Class B +7.21% +9.04%* --% --%
Class Y +12.21% +11.50%* --% --%
*Inception date was March 20, 1995.
On the graph above you can see how the Fund's total return compared to a
widely cited performance measure, the Lehman Aggregate Bond Index. In
comparing Bond Fund (Class A) with this index, you should take into
account the fact that the Fund's performance reflects the maximum sales
charge of 5%, while such charges are not reflected in the performance of
the index.
Your investment and return values fluctuate so that your shares, when
redeemed, may be worth more or less than the original cost. Average annual
total return figures reflect the impact of the applicable sales charge up
to a maximum of 5%. This was a period of widely fluctuating security
prices. Past performance is no guarantee of future results.
(This annual report is not part of the prospectus.)
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The financial statements contained in Post-Effective Amendment #47 to
Registration Statement No. 2-51586 filed on or about October 28, 1997 are
incorporated herein by reference.
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IDS mutual funds
Global/International funds
Funds in this group seek capital growth and/or income by investing primarily in
foreign securities. Foreign investments may be subject to currency fluctuations
and political and economic risks of the countries in which the investments are
made. They are high risk mutual funds with a potential for high reward.
IDS Emerging Markets Fund
Invests in a Portfolio comprised primarily of stocks of companies in developing
countries throughout the world that are believed to offer growth potential.
Seeks to provide long-term growth of capital.
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IDS Global Growth Fund
Invests in a Portfolio comprised primarily of stocks of companies throughout the
world that are positioned to meet market needs in a changing world economy.
These companies offer above-average potential for long-term growth.
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IDS International Fund
Invests primarily in common stocks of foreign companies that offer potential for
superior growth. The Fund may invest up to 20% of its assets in the U.S. market.
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IDS Global Balanced Fund
Invests in stocks and bonds in, for the most part, major markets throughout the
world, including the U.S. Seeks to provide a balance of growth of capital and
current income.
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IDS Global Bond Fund
Invests in a Portfolio comprised primarily of debt securities of U.S. and
foreign issuers to seek high total return through income and growth of capital.
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Growth funds
Funds in this group seek capital growth, primarily from common stocks. They are
high risk mutual funds with a potential for high reward.
IDS Precious Metals Fund
Invests primarily in the securities of foreign or domestic companies that
explore for, mine and process or distribute gold and other precious metals. A
highly aggressive and speculative fund that seeks long-term growth of capital.
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IDS Discovery Fund
Invests in small- and medium-size, growth-oriented companies emphasizing
technological innovation and productivity enhancement. Buys and holds larger
growth-oriented stocks.
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IDS Small Company Index Fund
Invests in all or a representative group of the equity securities comprising the
S&P SmallCap 600 Index, as it strives to provide long-term capital appreciation.
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IDS Strategy Aggressive Fund
Invests primarily in common stocks of companies that are selected for their
potential for above-average growth. Above-average means that their growth
potential is better, in the opinion of the portfolio's investment manager, than
the Standard & Poor's Corporation (S&P) 500 Stock Index.
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IDS Research Opportunities Fund
Invests in a Portfolio comprised primarily of equity securities of companies
included in the S&P 500 Index that are believed to have strong growth potential.
The Portfolio is managed using a research methodology by the Research Department
of AEFC. Goal is long-term appreciation.
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(This annual report is not part of the prospectus.)
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IDS Growth Fund
Invests in a Portfolio comprised primarily of companies that have above-average
potential for long-term growth as a result of new management, marketing
opportunities or technological superiority.
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IDS New Dimensions Fund
Invests in a Portfolio comprised primarily of companies with
significant growth potential due to superiority in
technology, marketing or management. The Fund frequently
changes its industry mix.
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IDS Progressive Fund
Invests primarily in undervalued common stocks. The Fund holds stocks for the
long term with the goal of capital growth.
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Growth & income funds
These funds focus on securities of medium to large, well-established companies
that offer long-term growth of capital and reasonable income from dividends and
interest. Foreign investments may be subject to currency fluctuations and
political and economic risks of the countries in which the investments are made.
IDS Equity Select Fund
Invests primarily in a combination of moderate growth stocks, higher-yielding
equities and bonds. Seeks growth of capital and income.
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IDS Blue Chip Advantage Fund
Invests in selected stocks from a major market index. Securities purchased are
those recommended by our research analysts as the best from each industry
represented on the index. Offers potential for long-term growth as well as
dividend income.
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IDS Managed Allocation Fund
Invests in a Portfolio comprised primarily of U.S. equity securities, U.S. and
foreign debt securities, foreign equity securities and money market instruments.
The Fund provides diversification among these major investment categories and
has a target mix that represents the way the Fund's investments will be
allocated over the long term. Seeks maximum total return.
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IDS Stock Fund
Invests in a Portfolio comprised primarily of common stock of companies
representing many sectors of the economy. Seeks current income and growth of
capital.
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IDS Equity Value Fund
Invests primarily in undervalued common stocks that offer potential for growth
of capital and income.
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IDS Utilities Income Fund
Invests primarily in the stocks of public utility companies to seek high current
income and growth of income and capital with reduced volatility.
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IDS Diversified Equity Income Fund
Invests in a Portfolio comprised primarily in high-yielding common stocks to
seek high current income and, secondarily, to benefit from the growth potential
offered by stock investments.
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IDS Mutual
Invests in a Portfolio which seeks to balance between common stocks and senior
securities (preferred stocks and bonds). Seeks a balance of growth of capital
and current income.
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(This annual report is not part of the prospectus.)
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Income funds
The funds in this group invest their assets primarily in corporate bonds or
government securities to seek interest income. Secondary objective is capital
growth. Risk varies by bond quality.
IDS Extra Income Fund
Invests in a Portfolio comprised mainly of long-term, high-yielding corporate
fixed-income securities in the lower rated, higher risk bond categories to seek
high current income. Secondary objective is capital growth.
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IDS Bond Fund
Invests mainly in corporate bonds, at least 50% in the higher rated, lower risk
bond categories, or the equivalent, and in government bonds.
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IDS Selective Fund
Invests in a Portfolio comprised primarily of high-quality corporate bonds and
other highly rated debt instruments including government securities and
short-term investments. Seeks current income and preservation of capital.
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IDS Federal Income Fund
Invests in a Portfolio comprised primarily of securities issued or guaranteed as
to the timely payment of principal and interest by the U.S. government, its
agencies and instrumentalities. Seeks a high level of current income and safety
of principal consistent with its type of investments.
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Tax-exempt income funds
These funds provide tax-free income by investing in municipal bonds. The income
is generally free from federal income tax, but a portion of the income may be
subject to state and local taxes. Risk varies by bond quality.
IDS Tax-Exempt Bond Fund
Invests mainly in bonds and notes of state or local government units, with at
least 75% in the four highest rated, lowest risk bond categories.
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IDS Insured Tax-Exempt Fund
Invests primarily in municipal securities that are insured as to the timely
payment of principal and interest. The insurance feature minimizes credit risk
of the Fund but does not guarantee the market value of the Fund's shares.
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IDS State Tax-Exempt Funds
(CA, MA, MI, MN, NY, OH)
Invests primarily in high- and medium-grade municipal securities to provide
income to residents of each respective state that is exempt from federal, state
and local income taxes. (New York is the only state that is exempt at the local
level.)
(icon of) shield with U.S. enclosed
IDS High Yield Tax-Exempt Fund
Invests in a Portfolio comprised primarily of medium- and lower-quality
municipal bonds and notes. Lower-quality securities generally involve greater
risk of principal and income.
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IDS Intermediate Tax-Exempt Fund
Invests in mainly investment-grade bonds and other debt securities with
intermediate-term maturities issued by state and local government units. Goal is
to seek a high level of current income exempt from federal taxes.
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(This annual report is not part of the prospectus.)
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Money market funds
These money market funds have three main goals: conservation of capital,
constant liquidity and the highest possible current income consistent with these
objectives. An investment in these funds is neither insured nor guaranteed by
the U.S. government, and there can be no assurance that these funds will be able
to maintain a stable net asset value of $1.00 per share. Very limited risk.
IDS Cash Management Fund
Invests in such money market securities as high quality commercial paper,
bankers' acceptances, certificates of deposit (CDs) and other bank securities.
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IDS Tax-Free Money Fund
Invests primarily in short-term bonds and notes issued by state and local
governments to seek high current income exempt from federal income taxes.
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For more complete information about any of these funds, including charges and
expenses, you can obtain a prospectus by contacting your financial advisor or
writing to American Express Shareholder Service, P.O. Box 534, Minneapolis, MN
55440-0534. Read it carefully before you invest or send money.
(This annual report is not part of the prospectus.)
<PAGE>
Federal income tax information
The Fund is required by the Internal Revenue Code of 1986 to tell its
shareholders about the tax treatment of the dividends it pays during its
fiscal year. Some of the dividends listed below were reported to you on
Form 1099-DIV, Dividends and Distributions, last January. Dividends paid
to you since the end of last year will be reported to you on a tax
statement sent next January. Shareholders should consult a tax advisor on
how to report distributions for state and local purposes.
IDS Bond Fund, Inc.
Fiscal year ended Aug. 31, 1997
Class A
Income distributions
taxable as dividend income, 0.85% qualifying for deduction by corporations.
Payable date Per share
Sept. 25, 1996 $0.03174
Oct. 28, 1996 0.03067
Nov. 26, 1996 0.02978
Dec. 26, 1996 0.02828
Jan. 29, 1997 0.02938
Feb. 26, 1997 0.03024
March 26, 1997 0.02873
April 28, 1997 0.02935
May 28, 1997 0.02878
June 26, 1997 0.02778
July 25, 1997 0.02678
Aug. 27, 1997 0.02888
Total distributions $0.35039
(This annual report is not part of the prospectus.)
<PAGE>
Class B
Income distributions
taxable as dividend income, 0.85% qualifying for deduction by corporations.
Payable date Per share
Sept. 25, 1996 $0.02862
Oct. 28, 1996 0.02718
Nov. 26, 1996 0.02667
Dec. 26, 1996 0.02506
Jan. 29, 1997 0.02575
Feb. 26, 1997 0.02722
March 26, 1997 0.02574
April 28, 1997 0.02587
May 28, 1997 0.02559
June 26, 1997 0.02467
July 25, 1997 0.02360
Aug. 27, 1997 0.02528
Total distributions $0.31125
Class Y
Income distributions
taxable as dividend income, 0.85% qualifying for deduction by corporations.
Payable date Per share
Sept. 25, 1996 $0.03244
Oct. 28, 1996 0.03145
Nov. 26, 1996 0.03048
Dec. 26, 1996 0.02901
Jan. 29, 1997 0.03021
Feb. 26, 1997 0.03092
March 26, 1997 0.02941
April 28, 1997 0.03014
May 28, 1997 0.02923
June 26, 1997 0.02810
July 25, 1997 0.02706
Aug. 27, 1997 0.02923
Total distributions $0.35768
(This annual report is not part of the prospectus.)
<PAGE>
Quick telephone reference
American Express Redemptions and exchanges, National/Minnesota
Financial Advisors dividend payments or 800-437-3133
Telephone Transaction reinvestments and automatic
Service payment arrangements Mpls./St. Paul area:
671-3800
TTY Service For the hearing impaired 800-846-4852
American Express Automated account information 800-862-7919
Financial Advisors (TouchTone(R) phones only),
Easy Access Line including current fund prices
and performance, account values
and recent account transactions
AMERICAN EXPRESS Financial Advisors
IDS Bond Fund
IDS Tower 10
Minneapolis, MN 55440-0010
<PAGE>
STATEMENT OF DIFFERENCES
Difference Description
1) The layout is different 1) Some of the layout in the
throughout the annual report. annual report to
shareholders is in two
columns.
2) Headings. 2) The headings in the
annual report are
placed in a blue strip
at the top of the page.
3) There are pictures, icons 3) Each picture, icon and
and graphs throughout the graph is described in
annual report. parentheses.
4) Footnotes for charts and 4) The footnotes for each
graphs are described at chart or graph are typed
the left margin. below the description of
the chart or graph.
